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National Bank of Serbia Contemplates Gradual Reduction in Benchmark Interest Rate

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The Executive Board of the National Bank of Serbia will hold its regular monthly meeting today (Thursday), where they will decide on the level of the benchmark interest rate (RKS), which also determines the level of variable interest rates for loans in dinars.

Zoran Grubišić, the Dean of the Belgrade Banking Academy, in an interview with, assesses that the decision of the Executive Board in February could lead to a mild reduction in the benchmark interest rate, which has remained at 6.5% for the past six months.

He believes that there is a 60 to 40 chance that the National Bank of Serbia will opt for a slight reduction in the benchmark interest rate by 25 basis points, which would bring the key rate down to 6.25%.

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“A slight reduction in the benchmark interest rate would not cause harm and would signal to the market that a turning point in the trend is coming,” says Grubišić for our portal.

Let’s recall that in January, the Executive Board of the National Bank of Serbia, for the sixth consecutive time since July 2023, kept the benchmark interest rate (RKS) at the same level. They stated that their decision was influenced by the ongoing reduction in global inflationary pressures, as well as the established declining path of domestic inflation, with its return to the target range expected in the middle of this year.

“The decision took into account the fact that in the previous period, the benchmark interest rate and mandatory reserve ratios were increased, and the effects of these measures will continue to impact inflation in the coming period,” emphasized the Executive Board of the National Bank of Serbia at that time.

Professor Grubišić believes that easing monetary policy in February, before a similar decision is made by globally influential central banks such as the U.S. Federal Reserve or the European Central Bank, would still pose a small risk to movements in our economy, but it could also be helpful.

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“I believe that a slight reduction of 0.25 percentage points would not worsen inflation, which is already on a downward trend, and it would give a positive signal for economic growth. Concern for economic growth is not in the strict job description or an official goal of the National Bank of Serbia, but it would make a contribution,” explains our interviewee.

Grubišić emphasizes that what would not be good is to experience a slight reduction and later find out that circumstances have significantly changed, leading to another increase.

“A global disturbance could lead to a situation where the benchmark interest rate is increased again, and the market becomes uncertain, meaning that monetary policy becomes ‘stop-go’ or unpredictable. In principle, this should not be done frequently, so it needs to be carefully measured. When you start lowering it for the first time, it wouldn’t be good to find yourself in a situation where you have to raise the benchmark interest rate again,” concludes Zoran Grubišić.

In January, both the Serbian and global central banks maintained their positions of not changing benchmark interest rates for similar reasons.

“The pressures from the labor market are still strong, and leading central banks highlight them as a key factor that requires caution in conducting monetary policy. In addition, the prospects for macroeconomic developments in China, due to their impact on global trade and world prices of primary products, as well as the ongoing geopolitical tensions, remain crucial sources of uncertainty that require caution in conducting monetary policy,” stated the Executive Board of the National Bank of Serbia in explaining the decision to “extend the pause” in the movement of the benchmark interest rate.

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